[HN Gopher] If founders treated investors the way they treat emp... ___________________________________________________________________ If founders treated investors the way they treat employees Author : yodon Score : 123 points Date : 2022-04-20 16:55 UTC (6 hours ago) (HTM) web link (software.rajivprab.com) (TXT) w3m dump (software.rajivprab.com) | d23 wrote: | Ha! Really close to a conversation I had with a recruiter back | when I was looking. They were promising a ton of equity, and when | I asked to see just a high level picture of the finances to make | sure basics like the amount of runway were reasonably long I was | met with an awkward pause. It's really strange that companies not | only expect you to take a massive risk on the "upside potential" | and then won't even let you inspect the current state. | | So yeah: I'll just go with Google I guess /shrug | ryandrake wrote: | I once interviewed for a software position at a risky looking | small company, and I asked the CEO/owner if the books were | available for me to verify their 1-5 year outlook before I | moved my family across the country for the job. He looked | totally shocked and gave a weirdly cagey "no". I learned long | after the fact that at first he was mortified and then later | had a "wow who does he think he is" chuckle with the HR lady | about me. | | They ended up making a barely acceptable offer because despite | my horrible faux pas, I was a domain expert and they couldn't | keep staff for more than a year. And I accepted because I was 1 | month away from being bankrupt and homeless. Lasted a year and | a half. The business turned out to be solid but I left for | greener pastures. | | I have no idea why owners are so cagey about the health of | their businesses and funding sources, to potential employees. | Especially when things are basically fine! He was bootstrapped | and evidently had fine cash flow. Why is this a faux pas to | ask? HN is full of entrepreneurs: why are you so offended when | a candidate asks about cash flow or to see the cap table? | kmonsen wrote: | I once interviewed with a startup and the equity part of the | offer was only x number of options. So I was like, OK what is | current/expected evaluation and how many shares outstanding, | like what is the percentage I get. That was apparently "big | company thinking" and they rescinded the offer just for | asking this question (through the experienced recruiter). | jacquesm wrote: | evaluation -> valuation? | lovich wrote: | These are intelligent people and the actions don't make sense | when you look at the details, like your example of being in a | fine position. That only leaves unaccounted for variables at | play, and the best I've been able to tell is that its a | cultural gap between the execs and the plebs that plays out | even at small startups. | | You see the same behavior in non tech companies when VPs find | out what their senior software engineers are paid, and start | getting upset at the similar salary level, even though that's | the market price. Or in things like rules that only Execs get | to fly first class. I had a an executive have HR look into me | "breaking the rules" when he saw me in first class with him | on the way to a company event after I paid to upgrade my own | seat. | toomuchtodo wrote: | Hard to take the lizard brain out of the human. | manquer wrote: | - Founders/management get defensive because they don't think | they are so small that they cannot be trusted to pay you on | time and when you ask for data it implies you don't trust | their word that can taken as insulting/lack-of-confidence in | them. | | - The other common reason is those numbers are confidential | not just from employees, a competitor or investor who is | evaluating a competitor could use it against you, so founders | worry about that stuff, you may not take the offer and | mention it to next company you talk to etc. | | - Few tech employees have the financial know-how to read | financials, especially of startups . Most early stage | investors rarely go through the actual books in any detail. | | - Measures like churn, CAC, ARR, MRR are the go-to metrics . | The actual book numbers basis cash flow can be very bad | although company is in decent health, this is why banks will | not loan early-stage startups money unlike small businesses | as startup numbers are not simply good enough by traditional | metrics. | | - In small enough companies exposing the books to new | employee will give rough idea of who is earning how much | including the founders, and what else company is spending | money on, keeping the information asymmetry can be seen as | beneficial by founders. | WalterBright wrote: | On the other hand, I know a fellow who thought the startup had | no future, and wanted a higher salary in lieu of options. | Management said ok. | | A couple years later, the ship came in, and it was a big payday | for the other employees, but not him. He was furious. | jacquesm wrote: | I'm pretty sure they were totally floored that you asked that | question. They probably expected a starry eyed response and a | 'where do I sign, master'. | Animats wrote: | That's what most crypto investments look like. | akavi wrote: | Huh, a lot of this doesn't ring true to me, as someone who's | negotiated comp at 6 (mostly YC backed) startups over the past 5 | years. | | In my experience, 10 year expiration dates for options and | reasonably detailed financials (at the very least, ARR, ARR | growth rate, churn rate) have been table stakes. And most | companies were happy to let me view their latest round's pitch | deck, after signing an NDA. | | It's frustrating that almost no company offers early exercise | rights, given how significant a tax value that it can represent, | but compared to most other industries, it does seem tech is | particularly employee friendly. | lbotos wrote: | It's fascinating because the 2 YC backed startups I worked for | both offered early exercise. Not saying you are wrong, In my n | = 2 experience, I thought it was in the "YC Playbook". | anamax wrote: | > And most companies were happy to let me view their latest | round's pitch deck, after signing an NDA. | | If potential investors are seeing that deck without an NDA, why | should you sign one? | CardenB wrote: | Because employees that you interview are different from | investors. | | At a minimum, you are going to interview a lot more engineers | that are tempted to divulge trade secrets than investors. | 21723 wrote: | The real answer, of course, is social class. Marx was right. | Investors are the bourgeoisie, and you're a proletarian whose | survival needs are an exploitable resource. They don't follow | the rules you do. Investors are like Ancient Greek gods (or | Ancient Greek something else) to founders, and you and I are | shit to these people, and the moment you stop making excuses | for their behavior and see it as it really is, it all makes | sense. | | What even Marx didn't foresee was the effectiveness with | which managerial bureaucrats (who might have been considered | upper proletarian in the 1800s) would take the system over | for their own purposes and merge into--and, arguably, become | --the real elite... the same thing that happened in certain | failed socialist experiments. | [deleted] | IncRnd wrote: | Well, actually I had a similar conversation at a startup a few | years back. I wanted to be paid in stock instead of money. This | is actually not an uncommon sort of conversation when you intend | to work at a company, but where they want you to sell a separate | existing company you already hold. | | In any case working for a paycheck is different compared to | investing for a possible payday. | 21723 wrote: | If the investors had bought in, Episode 2 would have 60% of the | investors either being made so miserable they quit, or fired "for | performance" after 364 days of service ("cliff") so they get | nothing--of course, even the employees who do hold on rarely get | anything, but that's another story. | | The really sickening thing is that most acquisitions (since | that's the likely route for these companys, if they succeed at | all) involve the common stock getting wiped out while the | executives get "management incentive plans" in new stock. They | still get screwed if they leave the acquirer (since their vesting | clocks usually reset) but they at least have a shot at getting | something. | anm89 wrote: | I'd have to imagine that taking equity as an employee is in most | cases a negative EV move. Keep in mind, people win powerball. | That fact that something is negative EV doesn't mean there aren't | winners. | | FAANG RSUs might potentially be another exception. | | But it seems like early stage startup options are an absolutely | minefields for employees. I've seen instances where it was setup | so regardless of how the company performed, people in the first | 10 employees would have walked away with nothing in an exit. | | And that's before talking about Cliffs. Even if every other thing | falls into place, you can just get fired on day 355 if a founder | decides they'd prefer to hold more equity. | ada1981 wrote: | I'd like to see the inverse of this -- if founders treated | employees like they treat investors. | eatonphil wrote: | > Can't you guys just replace this 90-day clause with a 10-year | expiry, so that I wouldn't have to deal with all these risks? | | I'm not an expert but my understanding is that everyone should be | pushing for this or for options to be way cheaper to purchase | when you leave. | | Without one of those two options the safest thing to do to not | waste vesting time is join a public company or a late stage | startup. Late stage startup you're more likely to be acquired or | IPO while you're there and you don't purchase options out of | pocket. | | Early stage startups are where you're least likely to stay the | 7-12 years required for the exit event to take place and thus | most likely to leave vested options on the table when you leave | the company because you don't have cash and/or don't want to risk | that cash. | anamax wrote: | If it's early, you should 83(b) the options. That eliminates | the "tax at exercise" problem and starts the long-term holding | clock. | | Yes, you have to come up with the cash to buy the stock at | 83(b) time, but if it's early, that's pocket change. | bcassedy wrote: | It's not pocket change for people early in their career. An | early engineer in a series A company could easily be getting | 10k+ in options | HWR_14 wrote: | As I understand it, options being cheaper to purchase means a | larger tax bill when you vest them, since they have a strike | price below their current value. | lbotos wrote: | I'm not sure what you mean. | | You aren't taxed when options vest because there was no gain. | Only when you exercise options, and you will be taxed on the | gain. So if you make more money, sure your tax will be | higher. | | RSUs are taxed at vest as that's a gain. | HWR_14 wrote: | Because the options, when they vest, have no value. | However, an ITM option does have value. The amount it's | ITM. So you'd have to pay the amount it's below FMV as | income, right? | bspear wrote: | Believe the downside to 10-year is that they convert from ISOs | to NSOs, which is far less tax-favorable | | But obviously, much better cashflow-wise | guelo wrote: | It's so unethical. Especially since most engineers aren't savvy | enough to have this conversation, the whole pitch is designed to | bamboozle. | biomcgary wrote: | On the other hands, some founders are amazing. I'm currently | working at a biotech startup started by a very successful serial | founder. At this company, the founder hired people that he has | worked with before, so my colleagues are top-notch. The founder | respects everyone he hired (and vice versa). The short-term | compensation is highly competitive and rather than options, all | employees were able to purchase shares (and the cost was covered | by a bonus). All of the employees are regularly briefed on the | fund-raising prospects (SAFE notes, Series A). Of course, I had | just resigned from a company that fit the OP's description all | too well. | sl9dmk2 wrote: | Gotta love the satire. Another thing investors have is access to | the full cap table and what people are paid across their entire | portfolio. | | Employees have hearsay and scraps of info that friends are | willing to share. Limited information = easy exploit | | Found this database of startup comp that sorta evens the playing | field: https://topstartups.io/startup-salary-equity-database/ | | Anything else out there? | VinLucero wrote: | Levels.fyi has good compensation data. | 21723 wrote: | The long con of startups is that founders want you to think | you're an investor--in truth, you are, because you're investing | time, which ought to be more valuable than the money of people | who have scads of it--and work like you're an investor... but | they're still going to treat you like an employee. It's the | same dysfunctional bureaucracy of the corporate ladder, except | in this iteration it's across companies, so you don't even see | the true executives (VCs). There are more rungs, more pitfalls, | and greater socioeconomic distances than there ever were | before. | | The innovation of Silicon Valley isn't anything to do with | technology, and hasn't been since the 1990s. Rather, it's the | disposable company. If the investors get sick of something | existing, they can choose not to fund it in the next round, | call their friends and tell everyone else not to fund it, and | it dies, allowing them to build something new in its place. The | advantages (to investors) of the disposable company are legion, | but one if them is that it doesn't matter all that much if you | pick a scumbag. Which is also why YC backs so many DVFs | (domestic violence founders). If they're jerks who get stuff | done, you can let them collect a few million before firing them | and putting your buddies in executive positions; if they're | jerks who don't get stuff done, then you scrap the company and | fund some other DVF. | sl9dmk2 wrote: | > Which is also why YC backs so many DVFs (domestic violence | founders) | | Are you Ryan Breslow? | 21723 wrote: | I don't know who he is. Should I? | sl9dmk2 wrote: | https://twitter.com/theryanking/status/148578482364175564 | 8?s... | | Curious to hear more about DVFs. Not surprised they | exist, but doubt they are the majority? | carlosdp wrote: | Every time one of these is written, it comes off as if the 90-day | window is something startups came up with to try and screw | employees. | | A reminder that the 90-day window is a requirement by law in | order for options to qualify as Incentive Stock Options, and | receive favorable tax treatment for employees [1]. | | If you want to do 10-yr exercise, that's fine, but until the law | is changed those will be NSOs and not receive that special tax | treatment and will be taxed on exercise instead of on sale. | | [1] https://www.cooleygo.com/isos-v-nsos-whats-the-difference/ | woah wrote: | There was a talk that's been shared on here from Ben Horowitz | where he explicitly pitches the 90-day window as a way to screw | employees. That's probably where the perception comes from: | | > The second way to handle it - no companies do this, which is | why I actually really like this post that he wrote - is you can | say up front, " Look you are guaranteed to get your salary but | for your stock to be meaningful, these are the things that have | to happened. You have to have vested. Two, you have to stay | until we get to an exit. Untile the company makes it. You've | got other money." Finally, the company actually has to be worth | something. Because 10 percent of nothing is nothing. The reason | we set the policy this way is we really value people who stay. | So don't join this company if you are going to join another one | in 18 months because you're going to get screwed. Our policy | guarantees you're going to get screwed. | | https://genius.com/B-horowitz-lecture-15-how-to-manage-annot... | ghiculescu wrote: | He pitches it as a way of screwing employees who aggressively | job hop. Not really the same thing. | gkop wrote: | No, a16z is very explicit about their views. This is not | from Ben but from the current managing partner: | | > A 10-year exercise window is really a direct wealth | transfer from the employees who choose to remain at the | company and build future shareholder value, to former | employees who are no longer contributing to building the | business/ its ultimate value. | | https://a16z.com/2016/06/23/options-timing/ | jacquesm wrote: | I read that as you're supposed to loyal right up to the | point the company decides to lay you off and you better | not think that you have any freedom once you sign on | because we will _retroactively_ screw you. The | percentages in the typical option pool are not going to | move the needle anyway and those employees that served | the company early on took far greater risks than those | that did so later and probably were paid much less too. | So as far as I 'm concerned they are well entitled to | their stock. | gkop wrote: | Totally. It's really fantastic that a16z is transparent | about their values. It's safe to assume other VCs share | these beliefs but choose not to disclose them. | 21723 wrote: | Yeah, because fuck those workers who try to make a free | market work for them once in a while. Don't they realize | that market talk is only a way for their social class | superiors to justify doing whatever they want, and that it | isn't for them? | 21723 wrote: | At this point, I'm surprised when other people are surprised | that founders and investors work together to screw employees. | "Work", in the corporate sense, is the same sort of | exploitative, morally vacuous, might-makes-right dominance | hierarchy that humans have been forming for thousands of | years. We haven't evolved beyond that garbage yet. | [deleted] | heliodor wrote: | Then the startup should explain it. They prefer to say nothing | on the topic. So, they typically care a lot about the UX of | product users but not about the UX of their employees. Seems | shortsighted. | jkaplowitz wrote: | That's true and it's not true. | | An increasing number of startups issue their grants such that | they qualify as ISOs if exercised within the 90-day window but | automatically convert to NSOs 90 days after departure (with the | actual exercise deadline dependent on employee tenure), so that | the employee and their tax advisors at time of departure get to | decide how to handle the tradeoff of more time for reflection | vs better tax treatment. | | What's more, if an employee gets more than $100k of exercisable | options in a year - very possible especially in cases where | early exercise is allowed - only $100k of those are treated as | ISOs. There's no way in which the tax law privileges a short | post-termination exercise period for the excess above $100k. | | Last, some companies use the same options plan both inside the | US and outside, including my two most recent employers. Most | employees working outside the US, with some exceptions like US | citizens and green card holders, wouldn't have to care about | this US tax law nuance. | carlosdp wrote: | Yea I looked into this when we were forming our options plan | after I read Sam Altman's article arguing for it. It's not as | common as you might think yet. | | We have one of the big name corporate law firms that most VC- | backed startups use, and when I asked about this kind of | setup they hadn't heard of it before. Path of least | resistance was to just do a regular ISO, especially since | early team members are usually experienced startup people | like us that are used to ISOs anyways. | | Would love to revisit it in the future and see if we can | enact this sort of plan, although in our case since we're in | the web3 space, the equity might not matter as much as the | tokens (which don't get favorable treatment either way atm). | leoqa wrote: | Does your company sell the tokens to account for tax | liability when compensating employees with tokens? | | I can imagine a new hell where my bonus is paid in Foo | tokens but it isn't liquid and then I have a massive tax | liability as the crypto market tanks. | rootusrootus wrote: | (2020), and previously discussed here: | https://news.ycombinator.com/item?id=24198228 | bspear wrote: | Somehow I heard Adam Neumann's voice throughout this article :) | | But yes, the hypocrisy is real. Employees get screwed big-time by | lack of information and 90-day exercise window: | https://www.productlessons.xyz/article/how-stock-options-for... | | Important thing is that the message continues to get out there, | and more people know to ask the right questions. ___________________________________________________________________ (page generated 2022-04-20 23:00 UTC)